Investment tip: Find out how much a lender is willing to let you borrow
Seasoned property investors know that valuers can easily offer subjective opinions on the value of their asset—which can affect their capacity to borrow—but there are ways through which you can find out how much a lender is willing to give out for the purchase of your chosen investment property.
Valuers tend to be more conservative with bank valuations compared to market valuations because they could be held liable if the bank ends up suffering financial loss.
This scenario can potentially lead to a negative circumstance for the purchaser, especially if he is dependent on the valuation being at the purchase price. In the event that it all works out for the investor and the bank valuation is equal to the asking purchase price, some lenders can still reject a valuation without justifying their decision.
“If a lender’s mortgage insurer is involved they, too, can override the valuation figure and state what amount they are comfortable in insuring,” according to Simple Property Investment’s Nick Holden.
Now, how exactly can an investor determine how much a lender is willing to let them borrow?
First and foremost, submit a finance application. Some lenders are willing to give a figure as early as this point. However, property investors must remember that there several factors that can affect a lender’s decision, no matter his subjectivity.
“If you are purchasing a property off-plan, understand that a bank valuation may be significantly lower than the purchase price once it is getting close to completion/settlement,” Nick explained, “If you elect to go unconditional for the purchase contract, ensure you have room to move if this happens.”
According to him, circumstances may change from the time of purchase to the time of settlement, and the longer a property development goes, the lower bank valuation could become. Moreover, valuation of new properties versus established properties also tends to go at a varying rate, depending once again on the lender.
Nick said: “Valuers are supposed to compare re-sales or sales but this rarely happens. They use comparisons of the sales of existing or established properties, which does not always reflect the added value of the property being new—apples are not being compared with apples.”
Despite the uncertainties in lending, property investors must remain willing to borrow money in order to move their journey further forward, as long as they can confidently demonstrate sound investment.
Seek good education and the right mentorship right before you begin your property investment journey in order to make smart decisions about even the most complicated processes.
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